Today's Mercury News provides an in-depth look at Mineta San José Airport expansion and asks whether it will be a "waste" as the price of oil leads to dramatic cuts in flights and services:
With the airline industry in disarray amid the startling rise in oil prices, new questions are emerging about the impact on San Jose's lofty $1.3 billion airport expansion.
Even as airport officials promise a state-of-art new terminal will open by 2010, they are also grappling with some disturbing trends that might eventually lead to fewer flights here. Increased traffic is key to paying off the expansion - and while airport officials are reluctant to speculate about long-term trends, nobody can say whether the short-term belt-tightening now under way will be enough to weather a protracted downturn.
SJC officials are in a tight spot - to keep airlines there, they have to have low fees. But to repay the $1.3 billion in bonds that were sold to finance the project, they need income. If flights are cut and the number of passengers drops SJC would have to get more money in fees from the airlines - which would cause the airlines to cut back service further.
THAT is what true financial risk looks like. SJC gambled that air travel would remain a viable form of transportation well into the future - and that oil prices would remain low. They may lose that bet.
The fear that fuel prices may rise even higher looms over San Jose's Aviation Director Bill Sherry. He recently showed the city council data from industry analysts who estimate that if oil goes to $150 a barrel, national passenger levels could fall by 23 percent. At $200 a barrel, they could plunge by 35 percent.
The airport's original $100 million budget for the fiscal year that began this month projected a passenger growth rate of 1 percent. If traffic instead decreases by 10 percent, officials say revenues for the airport - which is self-supporting and receives no money from the city's general fund - would fall as much as $9 million.
The price of a barrel of oil is going to fluctuate for some time. $150 is certainly possible within the next few weeks, just as $99 is possible within the next few months. But the long-term trend is upward, there can be no mistaking it. The result, as I have consistently argued on the blog, is reduced service:
Delta Airlines spokesman Anthony Black said the rising cost of oil means one simple solution: "Fewer flights and fewer markets." The company has already cut back flights nationwide by 13 percent since December and now operates nine daily flights into San Jose.
I don't welcome this - SJC is my primary airport, given how expensive it is to fly out of Monterey. This means my own travel options are going to be reduced and made more expensive.
What is to be done?
"The airport is the dance hall, and the airlines are the pretty girls," quips Forrester Research travel-industry analyst Henry Harteveldt. "You have to have the pretty girls to get the guys to show up - and the guys are the passengers."
Of course, SJC isn't the only dance hall in town. The other SJC - Diridon Station - is poised to become one of the Bay Area's key transportation nodes. HSR would complement Caltrain, the Capitol Corridor, and VTA light rail, all of which currently serve San José Diridon. Theoretically BART will be added into the mix, and even though I do not expect that to actually happen, Diridon Station will still be well positioned to use its "girls" - modern, high speed trains - to attract the "guys" - passengers - for travel purposes. HSR can move travelers quickly to SFO, and the Capitol Corridor can take passengers to OAK (where the Amtrak California line already has a station). Of course, HSR will also connect passengers to other points in California, notably in Southern California.
Whether we want to continue the tortured dance hall metaphor or not, it is clear that passenger rail is showing rates of growth that the airline industry cannot match. HSR won't replace the mid or long-range flights, but it would help passengers in the Santa Clara Valley have affordable and sustainable travel options, which they clearly are going to need in the future.
The real "financial risk" in this case is that the Silicon Valley places all its eggs in Mineta-SJC's basket, relying solely on airlines and an airport that both might face serious financial problems in the near future. Wouldn't it make sense to hedge against the risk by building a transportation system that has proved to be a global success, and that maximizes the ongoing passenger rail trend?